Maximizing Your Earnings as an Ethereum Staker with Kwenta: A Guide to Yield Generation.

Trade School
Published in
5 min readJan 2



  • ETH stakers are exposed to the price risk of Ethereum and are unknowing that they can mitigate such risk.
  • Kwenta offers on-chain perpetual contracts where users can open long/short positions to hedge their positions.
  • Kwenta Traders can earn rewards by simply placing trades.

Many cryptocurrency users are exposed to the downsides of the market without realizing there are effective ways to cover their positions. When the market takes a downturn, as it did in May 22’, many were exposed and incurred significant losses. A reliable way to mitigate market downturns is by using effective hedging strategies to reduce losses during bear markets. Hedging is a risk management strategy that involves taking a position in a financial instrument or security that offsets partially or fully any potential losses in an existing or potential position. Hedging is a way to protect against potential losses in investments as shown in figure 1.

Figure 1: Showing the change in the price of Ethereum over the last year.
Figure 1: Showing the change in the price of Ethereum over the last year.

Optimizing your Ethereum staking strategy

As an Ethereum staker, you face the potential for a downturn in the value of ETH, which can negatively impact your yield. An effective strategy to minimize the impact of significant downturns is using perpetual contracts on Kwenta. Kwenta is a cutting-edge perpetual contract platform that offers a seamless, intuitive trading experience.

An Ethereum staker is typically exposed to price fluctuations of ETH. In ETH terms their yield remains the same, but in dollar terms it can vary with the price of ETH. It is possible to lock in the price of the ETH in the future by opening a short position on Kwenta, while also receiving trading rewards as a Kwenta staker.

Consider a staker who has 32 ETH staked, currently valued at $40,000, and is projected to earn a yield of 3.2 ETH, valued at $4,000. If the price of ETH drops by 30%, the staker could potentially suffer significant losses, in this case, a net loss after yield of $9,200. However, if the staker hedges their position using a tool like Kwenta, they can protect themselves from the downside risk while still taking advantage of the capital efficiency offered by Kwenta. Let’s take the two possible outcomes when hedging your ETH while using Kwenta.

Scenario 1 — The price of ETH falls to $800

In this scenario, the staker makes money on the perpetual contract and loses money on the yield.

The net profit on the perpetual contract is:

35.2*($1250-$800) = $15,804

And the net loss on the spot yield is:

35.2*($800-$1250) = -$15,804

Effectively having no adverse effect of price change from the downward volatility.

Scenario 2 — The price of ETH rises to $1750

In this scenario, the staker makes money on the spot yield and loses money on the perpetual contract.

The net profit on spot yield is:

35.2*($1750-$1250) = $17,600

The net loss on the perpetual contract is:

35.2*($1250-$1750) = -$17,600

In each of these cases, gains from the perpetual contract offset movements in the underlying, locking in the expected $4,000 yield before hedging costs. Actual net yield will vary depending on hedging cost, and may be higher or lower depending on fees and funding rate. Additionally, expected percent yield will vary based on the amount of collateral used to hedge the position. For example, an additional $3,960 used as collateral brings the total principle investment to $43,960, taking the expected yield of $4,000 to 9% rather than 10%.

In short, traders should carefully consider funding rates, fees, and additional capital requirements when using perps to hedge.

Figure 2: Kwenta futures dashboard.
Figure 2: Kwenta futures dashboard.

Understanding the Benefits and Risks of Leverage Trading with Kwenta’s Cross-Margin Feature and Perps V2 offers phenomenal capital efficiency by allowing traders only to use a fraction of the funds needed to open a position. This is one of the ways stakers can lock in the yield risk-free. There is also an option to use the leverage of up to 25x where the staker can post less collateral. It is possible to make the same hedge while only needing around $1760 to use as collateral while also hedging fully against a downswing and covering their 35.2 ETH position. This is possible as the trader leverages their funds to amass a bigger position. This presents a vast improvement as only 4% of the capital is necessary while being fully protected from a market downturn. Kwenta offers a cross-margin feature that allows traders to use their account collateral to cover positions in multiple assets. This can be especially useful when opening multiple trades, as it allows traders to take advantage of opportunities without transferring additional funds to their accounts. With the release of Perps V2, Kwenta has also improved its on-chain perpetual contracts by reducing fees to single-digit BPS, saving users significant amounts in fees.

A highly leveraged strategy does come with significant risk as the position may get liquidated. As the trader is leveraged, the price may hit the liquidation price and continue to move, meaning the trader permanently loses the collateral for their perps position and is again exposed to the movements in the underlying. A trader must have the minimum maintenance collateral to avoid their position getting liquidated. One way to mitigate this is to monitor the asset’s price carefully and be ready to post more collateral if necessary to avoid being liquidated. Furthermore, there is a risk that the funding rate moves against your trade, and the trader is charged high daily funding rates. The funding rate is a payment every interval traders pay/get paid to short/long based on the difference between the perpetual contract market and spot prices. The funding rate is charged periodically and is determined by the interest rates of the assets being traded and the deviation of the perpetual contract from the spot market. It is important to note that holding perpetual contracts for a long time carries a risk of accumulating large sums of interest which may cause losses.

Figure 3: Showing ETH-PERP price information.
Figure 3: Showing ETH-PERP price information.

Leveraged trading may amplify gains and losses, so stakers should carefully consider their risk tolerance before entering into leveraged products. The yield can drop as this strategy relies on the yield being at least 10%. If there is a drop in the yield, the staker may be overexposed. Accurate monitoring of your position is critical.

Overall, using perpetual contracts to hedge yield as an Ethereum staker can manage the risks associated with staking. By considering the potential risks and rewards, stakers can earn a higher return on investment, mitigating price volatility. Kwenta is a standout platform for traders due to its comprehensive features and competitive fees. Whether you are a seasoned professional or just starting in the world of trading, Kwenta is an excellent platform.